What is cash flow in a medical practice or healthcare system? How can medical practices improve their cash flow and improve their financial health? In today’s constantly shifting healthcare space, what are the top challenges we need to address to improve cash flow in your medical practice?
These are the questions I deal with daily as an A/R consultant for healthcare clients. Cash flow is crucial to a practice’s overall success. As a medical practice owner or manager, you already know this. After all, you’re dealing with the financial realities of running a medical practice every day.
Here are a few key insights about cash flow in medical practices and healthcare system that I’ve observed:
- Patients who pay on time are more likely to remain as patients and schedule routine appointments – executing and reviewing your system to support prompt payment fosters a healthy practice
- Delinquent accounts depreciate at a rate of .5% every day. For every month that passes, 15% of the value of your A/R disappears.
- Accounts receivable is one of the largest financial assets in most medical offices – enlightened practices take advantage of new cash flow solutions to make sure this crucial part of their business is as healthy as their patients.
- If you are doing billing and collections the same way you did five years ago, you need to seriously consider making some changes.
Managing a medical practice’s cash flow is no easy task. In fact, it’s only getting harder. Here are some of the key challenges medical practices are facing.
Healthcare collection practices are viewed differently than commercial business
Commercial businesses can employ a variety of aggressive tactics to get paid, and their collection practices are not scrutinized the way healthcare practices are.
Think of it this way: How long can someone go past due on their cell phone bill before the calls, texts and letters start coming in?
Now think of this: How long can your patients go without paying you? Are you still only sending one statement a month and making phone calls after 90 days?
You are trying to collect from the same people commercial businesses are, and to make matters worse, patients often de-prioritize health care commitments. Have you ever heard a patient say something like this?
“Well, I saw my EOB, and the doctor got $100. I only saw him for 10 minutes. He doesn’t need my money.”
Patients are increasingly footing more of their health bills
In 2007, Patient responsibility represented 12% of total revenue. In 2012, the percent of patient responsibility rose to over 30% and will soon to be closer to 40-50% of contracted rates.
Self-Pay has now become the number three payer behind Medicare and Medicaid
HDHPs (High Deductible Health Plans) and increased self-pay portions are placing huge importance on putting systems in place to collect Self-Pay balances. Gone are the days of the $5 copayment. The average amount due per office visit is about $110. The days of low patient responsibility are gone.
However, many patients are used to a low share of healthcare premiums and plans that covered services with low deductibles and copayments. Some practices report that patients simply refuse to pay their portion even if they can afford it and others want to negotiate copayments and pricing for services.
Insurance Reimbursement Rates are Going Down
Doctors have lived off insurance money for years. Historically insurance reimbursements represented 80-95% of practice revenue. Now insurance reimbursements are plummeting every year. This downward trend will not be changing in the foreseeable future, and many patients owe that remaining balance; but most patients haven’t been paying their portion for years.
According to the MGMA, 30% of patients will walk out of your practice without paying a dime. Practices will send an average of 3.3 billing statements before a patient’s outstanding balance is paid in full.
Operating Costs are Rising
Practices are dealing with rising operating costs from new technology and requirements, and many are losing money every single month. To survive, many medical practices have cut staff and borrowed money. This is not working and is certainly not sustainable. With the Exchanges, HDHPs and ICD-10, it will only get worse.
Cash flow management and healthcare collections are getting more complex every year. Many of the collections strategies used historically simply do not work anymore. Practices are not using all of the resources available to manage their cash-flow and good advice can be hard to find.
Practices must be proactive in follow-up on slow-paying accounts. Early identification and intervention are crucial. Practices must leverage the newest tools, technologies and techniques to compete with commercial businesses for collectable dollars.
Stay tuned for my next piece in this Medical Practice Cash Flow Series for key advice and strategies on how to fight these challenges and get to a better cash flow in your medical practice.